Svl modernization wg ppt 080218

STANDARD VALUATION LAW INTEREST RATE MODERNIZATION UPDATE Chris Conrad, MAAA, FSA Vice Chairperson, SVL Interest Rate Modernization Work Group © 2018 American Academy of Actuaries. All rights reserved.

May not be reproduced without express permission.

NAIC 2018 Summer National Meeting – Life Actuarial Task Force - Boston, MA

Background 

Request from LATF: Modernize the process of setting valuation

interest rates for all non-variable annuities (i.e., all except single premium immediate annuities (SPIAs)) 

Valuation Rates: Must consider with Academy’s Annuity Reserves

Work Group (ARWG) Framework 

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ARWG’s Current Thinking: continue to need valuation interest rates for all fixed products as current Commissioners Annuity Reserve Valuation Method (CARVM) reserve required for the under-development exclusion test …even though valuation interest rate ultimately used in the reserve calculation may be different (to be determined) © 2018 American Academy of Actuaries. All rights reserved.

May not be reproduced without express permission.

Overall Approach 

Initial Approach: Build on phase one SPIA work   

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Single rate locked-in at issue, updated quarterly for new issues Rates based on US Treasuries + VM-20 Spreads Rates derived from typical Industry Asset Portfolios  Starting with same credit quality and bond maturities (2Y, 5Y, 10Y, 30Y) as SPIAs (per VM-22)  Representative portfolio varies by product characteristics with the goal of matching the duration of assets and liabilities at t=0 © 2018 American Academy of Actuaries. All rights reserved.

May not be reproduced without express permission.

Overall Approach (cont.) 

Looking at method used to develop valuation rates under current framework    

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Solve for rate on modeled liabilities to equal modeled investment income on assets for different products and features Examining three interest rate scenarios: level, rising, falling Develop adjustments to relate portfolio yield at t = 0 to “solved-for” rate Develop matrix of adjustments by product feature  Example: valuation rate = initial representative yield +/adjustment(s) © 2018 American Academy of Actuaries. All rights reserved.

May not be reproduced without express permission.

Overall Approach (cont.) 

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Initial list of differentiating features:  Guarantee Period  Surrender Charge Period  Market Value Adjustment (MVA)  Partial Free Withdrawals (PFW)  Guarantees on Future Premiums  Guaranteed Living Benefits (GLB)

© 2018 American Academy of Actuaries. All rights reserved.

May not be reproduced without express permission.

Questions? 

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Chris Conrad, MAAA, FSA Vice Chairperson, SVL Interest Rate Modernization Work Group Ian Trepanier Life Policy Analyst American Academy of Actuaries Trepanier@actuary.org

© 2018 American Academy of Actuaries. All rights reserved.

May not be reproduced without express permission.